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Centre for Social Justice and Change
PROVOCATION COMMENTARY NO. 1 March 2014
Valuing Complex Third Sector Organisations
Max Weaver
Senior Visiting Research Fellow , Centre for Social Justice and Change
Centre for Social Justice and Change School of Law and Social Sciences University of East London
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Working Paper Series The Centre for Social Justice and Change Working Paper Series is intended to aid the distribution of research findings, special lectures and work in progress by researchers and associates of the Centre. Papers aim to generate discussion among scholars, policymakers and practitioners. The views expressed in the papers are solely those of the author/s who retain the copyright. Comments on individual Working Papers are welcomed, and should be directed to the author/s. [email protected]
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THE POLITICAL CLIMATE
Here are some commonplace slogans or popular themes: a hand up, not a hand out; always something
for something; sort the deserving from the undeserving; something must be done; and, of course,
payments by results. The demand is for simple answers to complex questions. Hence the plethora of
sound bites and political initiatives, calculated to please the Daily Mail and to further their initiators’
careers within time frames too short for any results of the initiatives to be known.
Supporting a third sector organisation (TSO) because it is worthy, trying hard and might just do some
good is right out of fashion. The demand is for tangible outcomes or—adding some rhetorical force but
little meaning—impact.
To survive in this world, TSOs must be able to convince policy makers, funders and actual and potential
service-users of the value that they add. This fundamental issue has two analytically distinct but
operationally connected components:
what counts as value?
was it the TSOs actions that added it?
The first goes to our conceptions of value—a philosophical matter. The second, goes to causation—a
matter that mixes factual inquiry with value-based judgement. Both involve choices and judgements
that require careful thought rather than simple slogans. These issues are particularly acute when we
consider Community Anchors, locally-based multi-functional organisations that exist to respond to
multifarious and changing local needs.
CONCEPTIONS OF ‘VALUE’
We often agree that ‘valuable’ work should be supported. Given the level of abstraction of this
proposition—higher than ‘motherhood’ or ‘apple pie’—it is difficult to disagree. The proposition is
almost tautologically true. However, value is a complex and contested concept—in Ronald Dworkin’s
terms, ‘interpretive’ (Dworkin, 2011, 123-156). A and B might warmly agree that valuable work should
be supported. If their conceptions of value are strongly similar, their agreement will be real and will
provide a solid basis for collaboration by way of contract or partnership. But if A and B have different
conceptions of value, they will be simply ‘talking past each other’. There will be no meeting of the
minds. Their agreement will be apparent but not real. Consequently, there is a substantial risk that these
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underlying disagreements will later surface and undermine the effectiveness of any contract or
partnership in which—in the flush of seeming agreement—they might have engaged.
Several different conceptions of value are now explored briefly. The first few are easily expressed in
monetary terms. Some of the other conceptions are difficult to monetise, but it does not follow that
they are therefore valued less. It is possible, but not certain, that the value they capture is simply more
difficult to quantify and express in a way that will appeal in the current climate. Money sums seem to
spare us the trouble of moral judgements or thinking hard about the causal mechanisms by which
outcomes can be achieved. But there is no reason to assume that money is necessarily the prime or a
sufficiently comprehensive means of capturing and expressing value.
Commerce, economics, surveying and accountancy are dominated by exchange-based market values—
the willingness of a buyer and seller to exchange goods, services or options at a price. A willing buyer
might be prepared to pay £z to for a four week option to purchase Greenacre, locking out all other
prospective purchasers for four weeks. A seller might or might not be willing to grant that option in
exchange for £z.
Development value is the price a buyer would pay for land (or a patent) that can be exploited more fully
than it is presently. If there is planning permission for a high-rise, high-quality residential development,
the development value of Greenacre will be greater than if only two-storey affordable housing is
permitted. Intelligent vendors and purchasers arrive at development value by estimating (a) the
building’s cost and (b) its likely value in the market place for sale or rent. The latter [(b)] will take
account of accessibility, prominence, present and foreseeable demand and might also factor in
architectural merit or beautiful views. The market price is a function of willingness to pay, which is itself
a function of many factors—some hard and some soft, some permanent (e.g. the size of the plot) and
some variable (e.g. changing local demand for that kind of space; the return on alternative investments,
say, in gilts; or on architectural fashion).
Sometimes we relate value to cost (or to inputs). A TSO has raised funds and built a new building that
has become part of that organisation’s net worth or wealth. In so doing, the TSO exchanged £x for the
design, materials and labour. If freehold, the building will be entered on the balance sheet at £x—its
historic cost. These capital values are sometimes neglected, especially by TSOs that are dominated by
the revenue budget and the perpetual effort to secure enough income to pay the staff and keep the
services going. Furthermore—because there are few prospective purchasers that would want its
bespoke features that might be expensive to remove—a bespoke facility might have high use value to
one particular organisation but low market value. Following such principles, even negative value can
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arise—a ‘purchaser’ might need paying to take on highly bespoke or neglected and dangerous premises
and make them commercially useful. Historic cost is not a good indicator of market, use or development
value. It might fit with our instincts but often cannot withstand serious examination. Whilst we are
capable of thinking carefully to check and, if necessary, change our instinctive judgements, we might do
this lazily. This kind of thinking sometimes takes more effort than we want to afford (see Kahneman
2011, 31-49 on ‘the lazy controller’ of human reasoning).
Similarly, we might regard the price just paid at auction for a painting as ‘the value’ of the painting. It
was determined at the auction and thus seems certain (Dworkin, 2011, 90-96). But the buyer might not
be able to sell tomorrow at the same price, and will have to accept tomorrow’s certain price,
determined at another auction. Our paradigm sense of value tends to assume determinability and
certainty even when we realise that—because markets fluctuate—the latter might be temporary. The
value in ten years’ time is presently uncertain but is inherently determinable at an auction in ten years’
time.
If the painting is a portrait of David Beckham, its market price will be affected by his current popularity
as a sports personality. The Beckham factor will add value beyond the artistic. The price in today’s
market might well exceed that paid for a landscape painted by a young artist, whose exceptional work is
currently not recognised widely, but which might be much sought after in ten years’ time. The relative
market values of the two paintings might well change radically. In ten years’ time, it might be more
clearly recognised—under the conventions of art experts—that the aesthetic value of the young artist’s
work is greater than that of the competent portrait painter’s work.
As our example indicates, concentration on the exchange of money for goods can crowd out more
subtle forms of value—such as aesthetic value. Neither does exchange enable us to determine whether
a beautiful view should be preserved from HS2, nor whether bankers’ bonuses have been awarded
justly. But, within a particular domain of value, there are often substantially shared conceptions of what
is good and worth paying for. Whilst these conceptions ebb and flow with fashion, at any one time there
will be a substantial consensus, for example, that Coldplay’s music is superior to that of Jedward.
Judgements within such domains influence exchange values—the original drawings for a Coldplay CD
cover would command a higher price than one for a Jedward production. Nevertheless, it might have no
greater use value. The pleasures of its possession are governed, not by use value but by aesthetics,
scarcity and association with the musical performers. It is these factors that increase willingness to pay
and hence market price. The resulting market value does not reflect utility any more than the does the
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price of a designer mineral water that, in the functional terms of health, offers no advantage over tap
water.
Early internal combustion engines were rated in horse power. A 12 horsepower engine could do the
work of 12 horses. This is not simply a matter of exchange but also involves a notion of substitution. The
market (and monetary) value of the engine would be driven by the cost of twelve horses over the period
of the engine’s likely use. Use value is the cost that would be incurred to substitute the result that the
object being valued produces. Your reliable old car might have a market value of only £200 but the cost
of the train fares and taxis that you would incur without a car might well exceed that each month. A
more expensive car would have higher market value but similar utility—and might be less reliable.
A similar substitution lies at the core of social return on investment (SROI) methods of valuation. If the
cost of detaining a young offender in an institution is £1,000 a week and an intervention reduces
offending in an area by preventing one offence that would have resulted in a custodial sentence of 26
weeks, it is worth paying up to £25,000 for the intervention. The intervention is substituted for the
offence and generates a value—and funder’s price for the intervention—that takes no account of the
cost of the intervention. The TSO providing the intervention might incur costs of £50,000 but—because
the only available funder imposes a ceiling of £25,000—might be tempted to take rather than leave the
deal and struggle to raise funds for the remainder. The TSO’s position improves if the funder agrees to
pay a bonus for additional performance, but the TSO would have to gamble additional expenditure (and
cash flow burdens) on its own ability to collect such bonuses eventually.
BEYOND THE EXCHANGE PARADIGM
TSOs will claim that the full value of their work cannot be evaluated properly by any of these
mechanisms. They will feel that much of their work is invaluable or that it has inherent value. Even
where the work relieves the public purse of estimable probable expenditure and has few displacement
or negative side effects, they will be reluctant to accept—in their hearts of hearts—that social return on
investment (SROI) captures all the value that they believe they add. Some of that value, they will
continue to feel, is invaluable or inherent in their very existence. Are there other conceptions of value
that might help their cause?
The civil law makes valuations when awarding damages. If you negligently damage my car, I can recover
from you the cost of repair (or replacement with an equivalent if it is beyond repair). If there is
consequential economic loss caused by the unavailability of the car or the disruption, that too is
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recoverable. Such losses are easily monetised. But if the car is of particular sentimental value (it was my
grandfather’s) monetisation is more arbitrary, there being no established market for the surrender of
such non-transferable sentiments (economists describe these as consumer surpluses).
If my limb is injured, causing me to suffer a loss of amenity, there is no relevant market but the courts
create a tariff of values for the loss of such amenities. Damages for unlawful detention by the police are
also covered by a judicially devised tariff (Thompson, 1997). If the right to limit one’s family size is
interfered with by virtue of a negligent and ineffective sterilisation operation, the courts will now make
a ‘conventional award’ of £15,000 (Rees, 2003). This award is not compensation for a loss but simply
marks the invasion of the right. It is not compensation for ‘wrongful birth’ since the common law deems
every healthy child to be a blessing. As we move further away from the tangible, readily substitutable
and market-related harms, the awards become more symbolic in much the same way as a wedding ring
is a symbol of a marriage (Dancy 2004, 165).
TSOs face a double problem. First, funders want to pay only for outcomes and not to make more
speculative unspecific investments in organisations as such: ‘We do not pay for overheads or
administration’. Second, to the extent that they cannot meet funders’ expectations of specific
outcomes, TSOs will need to demonstrate their value qua organisations. TSOs will want to argue that
their very existence is a virtue and/or that their existence has intrinsic value. We shall see that the latter
is a challenging task and that it may well be that TSOs are best advised to concentrate on demonstrating
that investment in them qua organisations is worthwhile in terms of outcomes that relate to their
mission and character.
INTRINSIC VALUE-A CHIMERA?
Sometimes people will pay to maintain an option. ‘It would be shame if the CAB were to close. I’ve never
used it but it’s comforting to know that I could.’ Sometimes they do not pay but would nevertheless
have feelings of regret were it to close. Such feelings evidence value that is not easily captured in
exchange terms. Sometimes people will pay to maintain the existence of someone or something. A
donation to Oxfam might save a life in which the donor has no exchange-based interest. Nevertheless—
as all effective fund-raisers recognise—the donor probably derives some personal fulfilment or
satisfaction from making the donation. Lurking beneath the surface is the suggestion that there is
something intrinsically valuable in the very existence of the CAB and Oxfam. It would certainly help TSOs
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if funders and policy-makers were more aware that value varies in its determinability and that seeming
certainty is sometimes illusory. But can funders be convinced of intrinsic value?
Jonathan Dancy distinguishes between (i) the value of the thing and (ii) the reasons that make it
valuable. In that sense, value is a consequence or result of those reasons (Dancy 2004, 170-175). To find
that the value of a TSO is intrinsic, we would have to find intrinsic properties in that TSO that constitute
reasons that make it valuable. A TSO might argue that it is inherently associative and that association is a
virtue. However, a gang of armed robbers or arsonists is also associative. Do we ascribe to them the
same value that we ascribe to the TSO? It seems wrong to focus on ‘association’ and to ignore the
overall context.
The better strategy is to show that there are extrinsic reasons to value the very existence of the TSO.
The most promising will be demonstration that the TSO is a means to an end, such as the relief of
poverty in Downsville. That will require some causal explanation (see Cartwright and Hardie, 2012,
generally). After all, the point of TSOs is to provide benefits for their beneficiaries. Their value lies in
their consequences for others—in extrinsic outcomes. Their problems are (a) to capture that value and
(b) to demonstrate their causal connection to it. Khaneman’s lazy of thinking about appropriate
conceptions of value exacerbates these problems. So too do the seemingly pervasive tendencies to
outcome bias (Baron and Hershey, 1988) and hindsight bias—to value a process more highly simply
because it had a good outcome without ensuring that the outcome was causally connected to the
process. Bizarrely, to take a 1 in 10 chance of success and to succeed can be regarded as a good
decision. Similarly, to take 9 in 10 chance of success and to fail can be regarded as a bad decision. Both
outcomes lie in Adam Smith’s ‘empire of Fortune’ (Smith, 82). The antidote to these biases is careful
examination of causal mechanisms, asking not only ‘did it happen?’ but ‘how did it happen?’ and to
learn ‘to discriminate between fortune and wisdom or between misfortune and guilt’ (Arnauld, 1662,
285, cited in Baron and Hershey, 1988).
COMPLEXITY
TSOs vary in their complexity but community anchors—multi-functional locally responsive organisations
serving areas of deprivation—are complex for the simple reason that the needs to which they have to
respond are complex. If the task is drilling teeth, a dental drill is the best tool. But if the task could turn
out to be anything and you can take only one tool, you might prefer the Swiss Army Knife, the standard
model of which features: the main blade; a smaller second blade; tweezers; toothpick; corkscrew; can
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opener; bottle opener; flat screwdriver; cross-head screwdriver; nail file; scissors; saw; file; hook;
magnifying glass; ballpoint pen; fish scaler; hexagonal spanner; pliers; and key ring. The Swiss Army
Knife is not better than a good screw driver for turning screws, but it is much better than a screw driver
for scaling fish, reading small print and cutting paper. We might adapt H L Mencken’s aphorism that ‘for
every complex problem there is an answer that is clear, simple, and wrong’ (cited in Cartwright and
Hardie, 2012, 146) to read: simple statements about complex TSOs might very well be clear but are
mostly either wrong or too abstract to be useful.
The problem, of course, is that funders specialise and create silos. They want to fund only the best fish
scaler because removing fish scales is their chosen priority. A TSO might have a single purpose—the
relief of poverty in Downsville—but the achievement of such a purpose is a multi-faceted long haul and
Downsville Council is also working on it. Hence, outcomes that will convince silo-funders are scarce.
Nevertheless, the TSO has a case worth supporting if it is a demonstrably stable and responsive local
presence, able to provide services that will further that purpose—legal advice, debt advice, lunch clubs,
child care, pre-employment training, housing for the aged. In the short run, specialist legal advice
providers might perform better on the indicators that legal advice funders utilise. Nevertheless, for the
long term relief of poverty, might not the Swiss Army Knife be the better bet? Think of the Swiss Army
Knife as the organisation that facilitates the adequate performance of a wide range of functions when
required. Then add the virtue that the live organisation can add and subtract functions in response to
local need without having to go back to the factory for modification.
FACTUAL EXPLANATION AND NORMATIVE ATTRIBUTION
We do not ascribe credit or blame to an agent who has done nothing (or omitted to do something) that
causes a result. Even to explain an occurrence, rather than to attribute moral or legal (normative)
responsibility for it, we must find its cause or causes.
It is often fairly easy to identify necessary conditions—factors without which the result would not have
occurred—but the resulting causal nexus is vast. S steals my car. We say that he caused the loss of my
car, but he could not have stolen it from me had I not bought it and had the manufacturer not made it,
or the internal combustion engine not been invented…..and so on. There is no scientific test by which
we can determine that S’s conduct is the main or—in lawyers’ terms—proximate cause. Nevertheless
we find good reasons for choosing S. We might say that S had choices about how to act and that singles
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S’s action out as the cause. But that seemingly explanatory (and thus seemingly morally-neutral)
judgement is, in essence, a moral (and attributive) one, based on our notion of individual responsibility.
More obviously, as a matter of normative attribution, we might say: S showed disrespect for property
rights; such conduct should be deterred; if it is ignored people will take the law into their own hands;
there will be vigilantes and a threat to social order; the sum total of human happiness has been
reduced; theft is a moral wrong…..and so on. S caused the harm as a matter of fact and there are good
reasons that S ought to be punished and/or pay compensation for so doing.
If a TSO is to claim the credit for the value (however conceived) that it believes it can add or has added,
it must show that it caused the improvement. The further away from the readily monetisable—and
hence the more unusual to funders—the kind of value that the TSO claims to add, the greater will be the
premium on showing the causal mechanism by which it is added. Indeed, it may be only by uncovering
the relevant causal mechanisms that the funder or policy-maker can be persuaded to recognise the
claimed value at all.
SROI is not always adequate to this task. It can be useful when the causal nexus is well defined and
controlled for displacement (in our example above, the offenders simply move to another area or
another form of crime) and for other causal variables (such as changes in policing policy, economic
changes affecting employment levels, the introduction of new home security devices in newly built
homes in the area, etc.). But many interventions cannot be controlled in these respects and this is
especially true of the multi-functional—there-for-the-long-haul—community anchor when we consider
that organisation itself as the intervention to be supported.
A multi-functional organisation can gather support by demonstrating that its particular projects add
value. But it will often be in competition with more specialised providers of that particular service and
may not be the silo-funder’s choice. Furthermore, each silo-funder funds specific services rather than
organisations qua organisations and so is not interested in the multi-functional organisation’s valuable
ability to perform adequately—but not outstandingly—in several silos at once (Weaver, 2009).
Similarly, funders are often most impressed by randomized controlled trials (RCT). As Cartwright and
Hardie (Cartwright and Hardie, 2012) argue, when the controls are rigorous, such trials are a reliable
method of demonstrating that a particular intervention in a particular place is causally connected to a
particular outcome. The findings are strengthened by replication in precisely similar circumstances.
However, this tells us little about the transferability of the intervention to different circumstances.
Effectiveness in circumstances C1-4 is no guarantee of effectiveness in C5-8, or even of effectiveness in C1,
2. 3, 5. The possible solutions are: (i) the often impractical one of a new RCT in the different
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circumstances; and (ii) unpacking the causal mechanism that produced the successful outcome in the
original RCTs.
This causal unpacking (in (ii) above) entails the identification of the support factors without which the
intervention would have been ineffective. These support factors are similar to the factors identified
above as part of the causal nexus. They are necessary but not in themselves sufficient conditions of the
intervention’s effectiveness. It is also essential to identify other factors that might contribute in parallel.
Our intervention with young potential offenders might be working well but some of the reductions in
local crime might be attributable to an independent initiative in the local secondary school. This latter
initiative might have significant capability to reduce the crime rate wholly independently of the TSO’s
separate intervention.
However, the emphasis on causal explanation is promising for multi-functional TSOs that need to
demonstrate their value qua organisations. They will be swimming against a strong tide but can make
headway by demonstrating the mechanisms of their responsiveness. Over and above the effectiveness
of any specific intervention (such as starting a youth football club), there are some measurable factors,
which will be difficult to monetise but can be shown to have a strongly probably connection with the
community benefit flowing from the organisation’s wide and flexible range of activities.
Alice Sampson and the author have argued elsewhere that a multi-functional organisation’s capacity to
attract people to come and seek support is a crucial attribute that is causally connected to its
organisational effectiveness—and can be measured (Sampson and Weaver, 2010). How many people
come? How long do they stay? What help do they seek? Do they come again? For the same kind of
help? Do their friends and family members come?
We also argued that the multi-functional organisation’s capacity to connect people constructively is
causally connected to its organisational effectiveness—and can be measured. Does a visitor get
connected to the appropriate service, whether provided by the TSO itself or by others? Do visitors come
regularly and form associations with other visitors?
Social bricolage is also measurable. A multi-functional organisation’s Swiss Army Knife capacity to make
do, to refuse to be constrained by limitations, and to improvise (see Di Domenico et al, 2010) is
observable by non-participants and recordable by participants. Such observations will be beyond normal
monetisation but nevertheless constitute hard data.
Connection, attraction and bricolage are not substitutes for measures of performance within the various
silos of service. A funder or policy-maker will not be keen to fund a multi-functional organisation that
provides inadequate specific services. But a combination of (a) adequate performance within silos and
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(b) sound evidence of connection, attraction and bricolage can constitute a strong case for supporting
the organisation as such. It will challenge the current paradigm that narrows conceptions of value but is
more likely to convince than is the unsupported assertion that the whole is greater than the sum of the
parts.
CONCLUSION
Demonstrating the value of complex organisations can be hard work. It’s rather like dragging a badly
torn sack of bricks up a very steep hill.
Narrow exchange-based conceptions of value are so entrenched in the minds of some funders that the
only option will be to try to play the game by that funder’s rules, which tend to give specialist providers
the edge. Nevertheless attention to causal mechanisms will help to strengthen the TSO’s claim,
especially if that supports a community anchor’s claim to reach the parts that the specialists do not
reach so often.
Some other funders might be sufficiently open-minded to see that there are useful conceptions of value
that are not readily monetisable. They might even be convinced to support a Swiss army knife
organisation if the case for support is well-organised and backed with hard evidence of successful
attraction, connection and bricolage.
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New York: Bobbs-Merrill, 1964.
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Psychology, 54, 569-579
Cartwright, Nancy; Hardie, Jeremy (2008), Evidence-Based Policy: A Practical Guide to Doing it Better,
Oxford: Oxford University Press
Dancy, Jonathan (2004), Ethics without Principles, Oxford: Clarendon Press
Di Domenico, MariaLaura; Haugh, Helen; Tracy, Paul, (2010), Social Bricolage: theorizing social value
creation in social enterprises 34 Entrepreneurship Theory and Practice 681-703
Dworkin, Ronald (2011), Justice for Hedgehogs, Cambridge MS; Belknap Press
Kahneman, Daniel (2011), Thinking, Fast and Slow, London: Penguin
Rees, 2003, Judicial Committee of the House of Lords, United Kingdom Rees v Darlington Memorial
Hospital NHS Trust, [2003] UKHL 52
Sampson, Alice and Weaver, Max (2010), ‘Community Anchors: securing their position’ Rising East Vol 2,
Series 1, No 3 February 24th 2010 http://www.uel.ac.uk/risingeast/essays/2010-02-24.htm
Adam Smith (1759), The Theory of Moral Sentiments Uplifting Publications, Kindle Edition, 2009
Thompson (1997), Court of Appeal, Civil Division Thompson v Commissioner of Police for the etropolis
[1997] 2 All England Reports 762
Weaver, Max (2009) ‘Principles, paradigms and practice as barriers to “sustainable independence” for
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